someone explain this economy shit

[kh971 10+ year member]

The top 10 percent of taxpayers, pay 70%?' can't remember exact number of the taxes within this country.

 

[IgnoreMe 5,000+ posts]

You have a potential customer, he is going to get something done on his car, however he just bought a $500,000 house. He makes $80k a year. He loses his home, now he cannot afford to get his car worked on. He now lives on welfare in public housing. Not only do you lose his business but you pay for his welfare. Your taxes are raised as more and more people foreclose on their homes.
We are now a nation of many living off a few.

well yes, i understand that. but how do you lose your home out of nowhere? didnt you already know you were going to pay $XXXX per month for the next 30 years and factored that in to what kind of house you can afford? i mean if i make 5k a month. my home costs me 2k, i have 3k left over for all other bills and such. how can i no longer afford my home? i mean i guess i could be a retard and spend my 5k on toys instead of paying for my house.

am i being retarded here?

 

[galacticmonkey 5,000+ posts]

Jimmy Carter enacted the Community Reinvestment Act in 1977 (I think it was 77). This was so everyone could afford housing, even if you couldnt afford it. It made it so banks HAD to loan money to people who couldnt pay it back. Bill Clinton, Chris Didd, and Barney Frank messed it up some more, and banks loaned people money who they knew couldnt afford to pay it back because they figured that with rising housing prices, they could use the equity of their home to pay their mortgage. This only works on the idea that housing prices always rise...

Note* Another factor was how Clinton messed with the Federal Reserve rates when he was President. He made it so just about anyone could get a mortgage, whether they could pay it or not. Everyone was buying houses, spending money, the economy was booming. Then the bubble popped, and everyone blamed the Republicans, even though they had nothing to do with it.

...So investment companies packaged parts of these loans together into Collateralized Debt Obligations, or CDOs. They rated and sold these CDOs according to the rating they got, with AAA being the safest. The rating companies got more money for giving a AAA rating, so they basically just rated every single investment as AAA since there was no oversight. I mean why, not? Housing prices ALWAYS go up, right? That sounds like a safe investment to me.

Well... No. The housing prices fell. The CDOs basically became even more worthless than they were in the first place. The housing market bubble burst, people started losing their homes, energy costs began to raise, Wall Street had all their investments backfire, etc. Just not good stuff.

Now Obama spending all this money arbitrarily is going to put us even further in the hole. Even if it was quick spending, it wouldnt work. The fact is, that only a small percentage will be spend this year, and a small percentage next year. This bill wouldnt work even if it WAS supposed to happen any time soon. Its just him scaring the American people into supporting his personal interests and side projects.

We're pretty much screwed, bottom line. I think this powerpoint explains it quite well, and is pretty funny also.

Download and watch the Powerpoint.

How did it happen?

 

[squeak9798 5,000+ posts]

but how does credit go away? nothing has changed in the last 5 years for me. unless im misunderstanding you, which i probably am cause im tired as shit

The simple answer;

1) When banks make a lot of high risk loans, those loans eventually go bad and the banks start losing money. When banks start losing money, they stop lending to "high" risk customers, reduce lending to "moderate" risk customers and sometimes even make it more difficult for "low" risk customers to get loans (higher downpayments, reducing lines of credit, reducing their exposure, etc).

2) Banks can only lend X amount of money. Banks can't lend an infinite amount of money. Their ability to lend is dependent upon several different factors. If they are losing a lot of money, and some of their other investment activities go south, their ability to lend is reduced, so they reduce lending their money to high- to moderate- risk customers.

Keep in mind "customers" aren't just you and me. They are short term loans to businesses and other banks for things like inventory, payroll, lending to other institutions and customers, etc. When a business loses it's short term borrowing ability, they get stuck in a crunch because they have to spend their more liquid assets (cash, etc). If that happens for a long enough period of time, then the companies and other banks start having cash flow problems themselves. Basically, it's just one big snowball effect.

i dont get this either. so what if the house is worth less?

If you owed 90% of the houses original value but the value has dropped by 20%, then if you tried to sell your house you would still owe the bank 10% of the original value. You're on a variable rate loan (like a lot of people were), the rate adjusts and your payment goes up to a point that you can't afford it. You can't sell your house, because you owe more than it's worth. So the bank forecloses. Repeat this a couple million times, and home values deflate further. The bank takes back the house, sells it for a fraction of it's current value and lose a BUNCH of money. So they cut back their lending. From here, see the beginning of this post //content.invisioncic.com/y282845/emoticons/smile.gif.1ebc41e1811405b213edfc4622c41e27.gif

Second, many people use the equity in their home for "available credit". They rack up a bunch of credit card debt, then expect to be able to use the equity in their home to consolidate to reduce their payments. Home values deflate and they can't do this anymore, so now they are stuck with payments they can't afford and nothing they can do about it. Or, people use the equity in their home to borrow $$ for home improvements, etc. Values deflate, that equity is no longer there, so they have to put those projects on hold. So now they are spending less $$ in the economy because they don't have this "available money" that used to be in their home's equity. So now consumer spending takes a bit of a hit on top of everything else.

I'm sure Flip will pimp-smack me if I'm way off base.....but that's a general idea of why those issues matter.

 

[TNTR70 10+ year member]

250,000,000 million people in the us

x 7% unemployment rate

___________________________

17,500,000 million unemployed people

x $500 lets just say this is average take home pay for one week

___________________________

8 BILLION,750 MILLION DOLLARS PER WEEK NOW NOT BEING SPENT.

YEAH 7 PERCENT UNEMPLOYMENT ISN'T BAD.....RIGHT!

ITS ALMOST 10% IN FLORIDA IN SOME PLACES

 

[Andrizzle 10+ year member]

But deflation will continue until those with cash feel that it's safe to spend it. If things continue to get cheaper and cheaper, people will just wait.

Yup. We are in the waiting game of the recession now. Waiting for everyone to feel safe placing money back into the market. No one is spending money right now, and it only further drags out the recession. Pretty crazy stuff, but it has happened before, and it will happen again. This is just how it goes.

//content.invisioncic.com/y282845/emoticons/greedy.gif.5a53e6246569d7ab79867170f3b06629.gif

 

[duece212 5,000+ posts]

well yes, i understand that. but how do you lose your home out of nowhere? didnt you already know you were going to pay $XXXX per month for the next 30 years and factored that in to what kind of house you can afford? i mean if i make 5k a month. my home costs me 2k, i have 3k left over for all other bills and such. how can i no longer afford my home? i mean i guess i could be a retard and spend my 5k on toys instead of paying for my house.
am i being retarded here?

Adjustable rate mortgages, your payment could go from 800/month to 11,12,1400/month after a set time period. People like these because they could afford more home than a standard mortgage....until their adjustable rate kicked in, their home value dropped, and they were poked for a refinance

 

[Brian_smith06 10+ year member]

Jimmy Carter enacted the Community Reinvestment Act in 1977 (I think it was 77). This was so everyone could afford housing, even if you couldnt afford it. It made it so banks HAD to loan money to people who couldnt pay it back. Bill Clinton, Chris Didd, and Barney Frank messed it up some more, and banks loaned people money who they knew couldnt afford to pay it back because they figured that with rising housing prices, they could use the equity of their home to pay their mortgage. This only works on the idea that housing prices always rise... Note* Another factor was how Clinton messed with the Federal Reserve rates when he was President. He made it so just about anyone could get a mortgage, whether they could pay it or not. Everyone was buying houses, spending money, the economy was booming. Then the bubble popped, and everyone blamed the Republicans, even though they had nothing to do with it.

...So investment companies packaged parts of these loans together into Collateralized Debt Obligations, or CDOs. They rated and sold these CDOs according to the rating they got, with AAA being the safest. The rating companies got more money for giving a AAA rating, so they basically just rated every single investment as AAA since there was no oversight. I mean why, not? Housing prices ALWAYS go up, right? That sounds like a safe investment to me.

Well... No. The housing prices fell. The CDOs basically became even more worthless than they were in the first place. The housing market bubble burst, people started losing their homes, energy costs began to raise, Wall Street had all their investments backfire, etc. Just not good stuff.

Now Obama spending all this money arbitrarily is going to put us even further in the hole. Even if it was quick spending, it wouldnt work. The fact is, that only a small percentage will be spend this year, and a small percentage next year. This bill wouldnt work even if it WAS supposed to happen any time soon. Its just him scaring the American people into supporting his personal interests and side projects.

We're pretty much screwed, bottom line. I think this powerpoint explains it quite well, and is pretty funny also.

Download and watch the Powerpoint.

How did it happen?

my boss's dad actually explained all of that to me last week

 

[Flipx99 5,000+ posts]

Squeak...

Your post was weak.

You should have explained risk-adjusted return on capital...that woulda show'd him. //content.invisioncic.com/y282845/emoticons/smile.gif.1ebc41e1811405b213edfc4622c41e27.gif

I dunno where he could read the Basel II accords.

But your post was excellent. The other stuff is just technical features.

 

[duece212 5,000+ posts]

Second, many people use the equity in their home for "available credit". They rack up a bunch of credit card debt, then expect to be able to use the equity in their home to consolidate to reduce their payments. Home values deflate and they can't do this anymore, so now they are stuck with payments they can't afford and nothing they can do about it. Or, people use the equity in their home to borrow $$ for home improvements, etc. Values deflate, that equity is no longer there, so they have to put those projects on hold. So now they are spending less $$ in the economy because they don't have this "available money" that used to be in their home's equity. So now consumer spending takes a bit of a hit on top of everything else.

I'm sure Flip will pimp-smack me if I'm way off base.....but that's a general idea of why those issues matter.

Why you would secure your unsecured debt by using a home equity loan to payoff credit cards is beyond me....especially when you see tough times on the horizon //content.invisioncic.com/y282845/emoticons/confused.gif.e820e0216602db4765798ac39d28caa9.gif

If shit hit the fan I'd rather have people coming after my unsecured debt than my house directly for a secured equity loan

 

[Flipx99 5,000+ posts]

Adjustable rate mortgages, your payment could go from 800/month to 11,12,1400/month after a set time period. People like these because they could afford more home than a standard mortgage....until their adjustable rate kicked in, their home value dropped, and they were poked for a refinance

Indeed.

I am racing against this now.

I have a 3/1 ARM because I didn't want to save for a downpayment. I pay my mortagage bi-weekly and I am treading water with fair value. Fortunately, I have this tax credit money to help push me where I can try to refinance. My mortgage won't increase in 3 years if I can re-fi first. But it is tough spending 50-60% on your income on mortgage to be in a position where you could refinance. If I was some smuck who paid what I was supposed to, I'd be drowning right now.

 

[galacticmonkey 5,000+ posts]

The free market is an amazing thing when you dont fuck with it. //content.invisioncic.com/y282845/emoticons/fyi.gif.9f1f679348da7204ce960cfc74bca8e0.gif

 

[Flipx99 5,000+ posts]

Why you would secure your unsecured debt by using a home equity loan to payoff credit cards is beyond me....especially when you see tough times on the horizon //content.invisioncic.com/y282845/emoticons/confused.gif.e820e0216602db4765798ac39d28caa9.gif
If shit hit the fan I'd rather have people coming after my unsecured debt than my house directly for a secured equity loan

Who knows.

I am curious what logic makes people think that they would ever pay their mortgage off if the re-fi'd every couple years. Fvck, you might as well rent.

 

[Pl8er 5,000+ posts]

Let me throw this in and see if this makes sense to anyone. I know a guy who hasn't paid his mortgage in 8 months. He is now in foreclosure. He bought a house that was too big for him and he couldn't afford it. He actually still has his job, but just can't make the payments. So now the gov't is going to have him renegotiate his mortgage and he is getting a MUCH lower APR. Now me on the other hand has never missed a payment, almost always pay a few days early and sometimes multi-pay to try to get it paid off sooner. My house doesn't have enough equity to refinance to take part in the new lower rates. So now he is going to be helped for not paying and I am going to get stuck because I did the right thing and didn't just bail.

How the F did this happen?

 

[Andrizzle 10+ year member]

The free market is an amazing thing when you dont fuck with it. //content.invisioncic.com/y282845/emoticons/fyi.gif.9f1f679348da7204ce960cfc74bca8e0.gif

Indeed it is.

Example: America's power in respect to its age.

Simply 'the shit'